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Tax Tips for Buying a Second Property

By: Emma Eilbeck BA (hons) - Updated: 28 Sep 2012 | comments*Discuss
Second Home Property Tax Stamp Duty

Owning a second home can be costly, not only do you have to pay for all the furnishings in the house and things such as bills and utilities but you could also be stung with paying more tax as a result of your second home.

But there are some measures you can take to limit the amount of tax you will end up paying.

1) Stamp Duty Land Tax

Stamp Duty is one of the most controversial property taxes. Until January 2010 the government had introduced a Stamp Duty holiday, meaning you would not have to pay the tax on properties less than £175,000 in the UK. This holiday has now come to an end.

This means that all properties over £125,000 are subject to the tax. For properties between £175,000 and £225,000 you will need to pay 1% of the property¹s price and 3% for properties over this. If you want to avoid this extra cash you should try and find a property under £125,000.

2) Council Tax

If you own two homes you could end up paying council tax on both properties.You will almost certainly have to pay council tax for your first home, or your main home.

If there is nobody living in your second home and it is unfurnished you will not have to pay council tax for the first six months of owning the property.

Once it is furnished you will have to pay 100% of the council tax bill. If you want to save some money you should make sure you contact your local council office and alert them if the property is vacant.

For second homes you will need to pay 90% of the Council Tax bill.

3) Capital Gains Tax

If you sell your second home this will be liable for Capital Gains Tax and you will have to work out how much you lost or made for the sale of the property.

If you have two properties you will have to alert your local council as to which is your main residence within two years of moving in.

It will not be liable if at some point the property has been your main residence, so you could move in there for seven months of the year which would make you exempt from the tax.

4) Tax On Income From Letting Out Your House

Many people forget to inform the tax office that they are renting out a second home or are making an income from the rent coming in. This is not advised as you could end up with a hefty bill once they discover you. You will need to work out your net profit from the rent as well as everything you spend on the property. You should submit all of these to HMRC.

Make sure you deduct things such as any damage that is done to the property and what you had to spend on replacing it.

5) Renting Out a Single Room in the UK

If you are renting out just one room in your second home and this is classed as your prime residence you will be entitled to apply for the Rent A Room scheme. This allows you to get a tax-free income from the letting of up to £4,250.

6) Tax on Holiday Homes Abroad

For your second property to be classed as a holiday letting it must be within the European Economic Area, a simple search online should help you determine whether your holiday home is.

It will also need to be furnished and available to let to the public for at least 140 days a year and let for at least 70 days a year, you will also be expected to not have anyone staying in the home for more than 31 days.

In the 2009 Budget though holiday letters were dealt a blow and it was announced that they would not receive and tax relief for homes in the UK and abroad- so if you are relying on this you will be disappointed.

Once you have purchased your second home you will need to alert your local authority about what you plan to do with your second home. If you have purchased your property abroad you should check with the local area about what taxes you will be liable for, as this could differ from location to location. When it comes to your second home honesty is the best policy or could miss out on tax savings.

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